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Business Asset Disposal Relief on sale of clients

Business Asset Disposal Relief on sale of clients

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Sole trader Financial adviser wishes to sell part of their client bank, around 50%, will they get BADR? 
They will hold remaining client bank for a few years then sell that. 
Having reviewed old Retirement Relief case law it seems relief not available but Gilbert t/a United Foods v CIR gives some hope.

Any helpful comments welcome.

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By Wanderer
25th Nov 2021 12:46

Not sure I'd be looking too much at retirement relief case law? Maybe Entrepreneurs Relief cases?
I'd suggest you concentrate on the BADR provisions set out your thought process based on that.

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Replying to Wanderer:
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By Paul Crowley
25th Nov 2021 12:56

Agree
Retirement relief was before Entrepreneur relief before BADR

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By The Dullard
25th Nov 2021 13:07

The relevance of Retirement Relief case law is, of course, that the ER (now BADR) legislation is heavily drawn from the former RR legislation.

What matters is whether an identifiable part of the business (which is capable of being operated independently as a going concern) is being transferred or whether it is just an asset (or assets) of the business. The former qualifies and the latter does not, unless the asset(s) are in use at the date that the business ceases and disposal takes place within 3 years of such cessation.

I'd speculate that an IFA is a million miles from the trade carried on by Mr Gilbert.

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Replying to The Dullard:
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By Tax Dragon
25th Nov 2021 13:38

Gilbert was an ER case anyway. The judgment draws on RR case law. HMRC mentions RR case law all over the place in relation to BADR (most relevantly, perhaps, CG64020). I don't think there's much doubt that RR case law does remain relevant.

AIUI, case law seems to conclude that if you sell a distinct, identifiable part of the business that you then cease doing, you probably meet the BADR conditions; if you carry on doing what you were doing but a bit less of it, you probably don't. That's different from what you said. Which (from experience) probably means I'm wrong.

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Replying to Tax Dragon:
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By Tax Dragon
25th Nov 2021 14:07

I've reread Dulls's comment. It's not so different at all. I've just added the condition that the vendor stops doing something.

I think that is a correct addition. Happy days.

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Replying to Tax Dragon:
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By The Dullard
25th Nov 2021 14:15

I think that in Gilbert (paras 45 to 47) doubt was expressed whether the Fox test was appropriate. There was reference to IBA cases as well.

However, for a transeree to take over the running of part of the business, it is inherently necessary for the transferor to also cease running it. Looking at what the transferee gets is a better way of seeing what has been transferred, to my mind, than looking for what the transferor no longer does.

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Replying to The Dullard:
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By Tax Dragon
25th Nov 2021 14:23

Sure, but a client selling half his/her clients (and surviving off the remaining half) might argue that the half sold constituted (or could constitute) a business in its own right. CGT is a tax on disposal. It can't be wrong to look at what is disposed of (and not just what is acquired). And I think the farming cases in CG64020 do just that.

(I'm not sure we are disagreeing; just seeing the same thing from different angles. I get that with Jon a lot in here too. Seems I am the common factor... the one with odd perspectives.)

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Replying to Tax Dragon:
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By Branski
25th Nov 2021 15:49

Tax Dragon wrote:

Sure, but a client selling half his/her clients (and surviving off the remaining half) might argue that the half sold constituted (or could constitute) a business in its own right. CGT is a tax on disposal. It can't be wrong to look at what is disposed of (and not just what is acquired). And I think the farming cases in CG64020 do just that.

(I'm not sure we are disagreeing; just seeing the same thing from different angles. I get that with Jon a lot in here too. Seems I am the common factor... the one with odd perspectives.)


I'm not sure the farming cases help as there seems to have been a reduction in the scale of the business plus a change in that business for each. If the IFA was giving up say small business owners and focusing on private clients, would that work?!
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Replying to Branski:
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By Tax Dragon
25th Nov 2021 16:22

When I read Gilbert more closely, I couldn't help myself thinking that Dulls's description was closer to the basis of the finding in that case.

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Replying to The Dullard:
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By Branski
25th Nov 2021 15:31

"The relevance of Retirement Relief case law....."

This sums up my concern. Yes, current legislation heavily drawn from RR. Mr Gilbert did sell one of his clients (< 10 from memory) and the only near relevant ER case I could find.

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By richard thomas
26th Nov 2021 09:25

Ah Gilbert! That brings back memories of my earlier days in the Tribunal when I was a "non legal" member sitting with the judge, as indeed I was in Gilbert, sitting with Judge Sandy Radford.

Why I remember it clearly is that it was one of the first cases in which the judge agreed that my wholesale rewriting of their first draft was better than their's, and so paras 31 to 60 in Gilbert are mine.

Rereading it I think it is a correct summary of the law. Whether the disposal is of a "going concern" is a very important factor in my view, and in that of the author of the CG Manual. It is a sufficient but not necessary condition - if you have it, you qualify, if not, you may still qualify.

Mr Gilbert clearly sold his business with his main supplier (even though it was only 1 of 9, as Branski mentions, it accounted for 55% of Gilbert's turnover and a large proportion of his customers) as a going concern, and the inclusion in the sale of goodwill, customer lists etc was a crucial factor in finding that.

I don't see the position of an IFA as being a million miles away from Gilbert - far from it, as we have someone working between a few large suppliers (financial concerns) and a number of customers for their profits. Access to those customers, rather than having to build up customer base from scratch is very valuable to an IFA, and so the right to that access, a form of goodwill, is to my mind an important asset in establishing that there is a sale as going concern.

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Replying to richard thomas:
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By Tax Dragon
26th Nov 2021 15:03

The difficulty I have with the going concern view (notwithstanding that the concept exists in statute vis-à-vis VAT) - that is, the difficulty I have if it has to be viewed, as Dulls says [and possibly Gilbert does too], through the lens of the purchaser - is that the outcome might depend on who or what the purchaser is.

As a for instance… There are accountants near us selling up and retiring. Bob is one such. His lease is soon to run out, all he really has to sell is the client base (and I guess the name if you want it). Should some bright young Awebber happen along and buy the clients, take out a new lease and carry on the practice in situ (maybe under a new name, maybe not), I don't think anyone'd question what's been bought and sold.

But what we're doing is buying chunks of clients from retiring practictioners. In Bob's case, all the clients. But Bob's old office won't be there (/in use) anymore.

Is what we are buying a going concern? All trace of the old practice will shortly be rubbed out. I know it doesn't matter in this case. BADR will still be available, because the asset was in use when Bob's business ceased. But that's hardly the point.

I think what is disposed of is a going concern - yesterday Bob had a practice, today he doesn't.... which is why I say above that one should view it from the perspective of the person making the disposal. (Or I guess the supply, if we're talking VAT.)

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Replying to Tax Dragon:
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By richard thomas
26th Nov 2021 15:31

It is I think indisputable from the authorities etc set out in §34 of Gilbert that where there is a sale of or transfer of a business or part as a going concern, BADR will be due. Those authorities include court decisions binding on the FTT.

I don't remember where the "seller's viewpoint" requirement comes from, but in any case I do not think that there can be any difference as between taking the viewpoint of the seller or the purchaser - whether there is a TOGC (to use the VAT acronym) is a matter of objective fact, usually dependent on whether stock and/or goodwill passes.

Lack of a TOGC does not prevent BADR - §34(c) - quote from Pepper v Daffurn and our comment below.

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Replying to Tax Dragon:
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By Tax Dragon
26th Nov 2021 15:39

I retract that comment.

I have misrepresented Dulls (and possibly Gilbert).

Twice in one thread. That's some going even for me.

Edit: retraction made before seeing Richard's reply to me above. And the comment retracted - now that it's not (or may cease to be) obvious with this forum's format - is the one to which Richard replied.

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